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Will wise men follow the stars?

Are fund firms expecting their star managers to shine too brightly and are they in danger of burning out? Our panel gaze through their telescopes towards some of the individuals at the zenith of fund performance as they debate whether Bill Mott can revive fortunes at Credit Suisse and if Anthony Nutt can make a success of Jupiter’s planned global income fund. Also

Will Bill Mott returning to run Credit Suisse’s income funds restore the group’s past glories?

Williams: This looks like a similar situation to the long-drawn-out retirement of Anthony Bolton from the Fidelity special situations fund. This over-reliance on star fund managers cannot be healthy for the active fund management industry and we believe there will be a general move to low-cost index funds over the coming years, as has been the case in the US. Investors realise that Bill Mott will retire at some point soon, so I cannot see people rushing to invest new money on the back of this news.

Lincoln: No. The move is only short term until a suitable replacement can be found. Credit Suisse appears to be going into freefall. Apart from its respected fund of funds’ range, there is little to get excited about in terms of performance across the range. The situation with the equity income funds is becoming farcical.

Two weeks ago, Bill Mott was providing an overseeing role to Credit Suisse’s fund managers, last week he was retiring outright and now he is not only back at work but running the funds he used to run a few years ago. This does not inspire confidence in a sector where there are plenty of decent alternative funds available.

Perry: No. It has virtually nothing left to offer in the mainstream retail market and you have to question its commitment. This smacks of desperation and is only a short-term measure. Credit Suisse will do well to find a decent replacement.

Take the multi-manager team out of the business and you have a business with no serious inflows. I like the UK guys at Credit Suisse, Bill immensely as a manager and have enjoyed listening and talking to him over the years. This is a hugely generous offer by him but I would say it is merely delaying the inevitable.

Is there a market for US- style guaranteed annuity investment bonds that offer limited annual withdrawals? Who do you see investing in this type of product?

Williams: There will always be a market for an investment that is designed to generate an income to supplement retirement provision. I doubt, however, that the product would be a success with the word annuity in its title. The viability of such an investment would depend on the tax treatment, flexibility and competition in the marketplace. If there is limited competition, charges will be high and make it less attractive.

Lincoln: It looks like a classic example of an insurance company designing a product and trying to push that square design into a round hole. A recently launched product on these lines appears expensive and restrictive in terms of funds available. It is aimed at people who want to supplement their pension income in retirement.

However, you get no tax relief on the investment and, with equity income, bond and property funds yielding around 4 per cent to 5 per cent net of tax, why would long-term retiree investors prefer this strange hybrid product over a decent range of considered mutual funds?

Perry: There is always a market for new products, provided they offer something a little bit different, are not too complicated and provide investors with a decent risk/return ratio.

I do not like products that tie investors in, unless they provide an extremely compelling return, so limited annual withdrawals are not really attractive. The average annuity rate offers little better than you can get in the building society so why tie up your money? Guaranteed investment bonds already offer paltry rates of return so any new product will have to be a blockbuster.

Is Fidelity right to cut the initial charge on the special situations fund without naming Anthony Bolton’s successor?

Williams: Fidelity removed the higher initial charge on the special situations fund on November 1 but has only brought the charge back to the 3.5 per cent level that it was at before the fund split. It looks like a logical and sensible move although it is nothing to get excited about.

Lincoln: Yes. Any reduction in costs involved with investing is good. However, if you now invest in the fund and are unaware that Anthony Bolton (and all his glorious past performance) is going, you probably should not be investing at all with anyone.

Perry: It is a business decision, so why shouldn’t it? But anybody investing their money now needs to be questioned. Can anyone tell me why they would invest their money now, knowing that the person responsible for all the performance over the past 25 years has said he is retiring from the fund in 15 months?

On that basis, you are investing for 15 months with no guarantees of outperformance, then potentially have a decision to make as to whether to stick with a new manager. It is not Fidelity’s fault that some people love a bargain.

Will Anthony Nutt’s appointment to run Jupiter’s planned global income fund be stretching him too far?

Williams: If and when Jupiter launches this fund, having a big name at the helm will almost certainly increase the flow of money into the fund. The proof of the pudding will be in performance and, if this is good, no one will question if he is overstretched. I am sure he will be a member of a wider team and would not take on the role if it was likely to put his reputation at risk.

Lincoln: We hope not. We like Jupiter, we love equity income funds and we dote on Anthony Nutt. He already runs massive amounts of money, with no detrimental effect on performance.

Our concern is that he now has to look for decent investments on a worldwide scale. Where are the extra hours in the week going to come from? First Newton, then Jupiter – global equity income funds could be the 2007 bandwagon for marketing teams.

Perry: Possibly, possibly not. It is unlikely to stretch him in terms of assets under management for the foreseeable future unless Jupiter has a deluge of new inflows. Jupiter has some decent managers covering Europe, Asia and Japan so it should be able to leverage off their research. In addition, Tony has an eye for spotting the winners, so picking stocks globally with good franchises, solid earnings, good cashflow and sustainable dividends should not be beyond him.

What is your reaction to the shake-up of the Isa regime announced by Treasury Economic Secretary Ed Balls, where Isas will now remain permanently, as the previous commitment would have seen them in place only until 2010?

Williams: This is great news as it removes a lot of uncertainty and gives a long-term incentive to save although it is a disgrace that the Chancellor considered scrapping Isas in the first place. In real terms, Isa limits have been decreasing since 1999 so it will be interesting to hear about a possible increase in the annual limit in the pre-Budget report. Allowing child trust funds to roll over to Isas on maturity is an excellent idea and gives an added incentive for parents to save for their children

Lincoln: Totally positive. Isas are a sprat to catch a mackerel. Isas attract people to invest who otherwise might not bother. Our job when they have invested in an Isa is then to explain to them that they should invest further outside of Isas and not get hung up on the silly £7,000 limit. With careful planning, non-Isa funds can be just as tax-efficient.

Perry: Obviously, it is good news for investors that Isas will remain in place and that the distinction between maxi and mini will be removed. To really encourage long-term savings, I would like to see the maximum investment level raised to £10,000 a year. It is hardly a severe blow to the Government finances to continue indefinitely with Isas. Similarly, we must remember that any change of Government could bring new regulations and products.

Will the introduction of real estate investment trusts in January 2007 make a big impact on your business?

Williams: It will not make much difference at all. It is generally agreed that asset allocation accounts for over 90 per cent of a portfolio’s performance. As most people’s main asset is their house, we do not believe there is much sense in increasing exposure to property. But Britain’s love affair with property continues unabated and it will take a market correction to bring everyone back to reality.

Lincoln: We do not think so. Reits are a proxy form of commercial property but, at heart, are equities and carry some of the downside (and upside) of equity investing that true bricks and mortar funds do not. However, I could be wrong, so we will watch and see.

The whole commercial property sector is hot. For years, this brilliant asset class was ignored by many advisers who piled instead into with-profits bonds. Now that cash cow has gone and, from the inflows seen, clients appear to be ploughing entire portfolios into this asset class. Dangerous times

Perry: No. We have been using global real estate funds since they came to the UK market, so our knowledge of the area is quite good. This is positive for the UK property market as well as for some UK companies not really recognised as being a property company. But it is not going to have a major impact on our business. We will go on using property funds as usual, whether they are direct bricks and mortar, Reits or a combination,


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